McDermott Disappoints, Stock Drops (MDR)

McDermott MDR disappointed Wall Street today by reporting EPS of $0.19/share, worse than the consensus estimate of $0.29/share. The stock of McDermott responded by trading over 5% lower in after-market in comparison to the close of regular trading. McDermott International today reported net income from continuing operations of $45.5 million, or $0.19 per diluted share, for the 2010 fourth quarter. The results of the 2010 fourth quarter compare to net income from continuing operations of $73.4 million, or $0.32 per diluted share, in the corresponding period of 2009. Both periods exclude the results of The Babcock & Wilcox Company (“B&W”), which was spun-off to McDermott shareholders on July 30, 2010, as well as the operations of McDermott's charter fleet business, which is classified as held for sale. Weighted average common shares outstanding on a fully diluted basis were approximately 237.0 million and 234.5 million in the quarters ended December 31, 2010 and December 31, 2009, respectively. McDermott's revenues for the 2010 fourth quarter were $539.6 million, compared to $756.8 million in the corresponding period of 2009. The year-over-year decrease was primarily due to lower revenues of $126.6 million in the Asia Pacific segment and $96.2 million in the Middle East segment. The lower revenues in the Asia Pacific segment were due to significant customer-approved change orders that were recorded in the 2010 fourth quarter which, as a result of the added scope, reduced the percentage complete of two major projects and lowered the revenue and income recognized in the period. However, the overriding impact of the change orders is that the contract values have increased and the combined expected profit at completion improved for these projects during the quarter. Within the Middle East segment, the reduced revenues were primarily due to fewer barge days on our major construction vessels as a result of the substantial completion of the Qatar pipeline projects. The Company's operating income was $59.3 million in the 2010 fourth quarter, compared to $90.9 million in the 2009 fourth quarter. The year-over-year decrease was primarily due to lower revenues in the Asia Pacific segment and the associated profit impact of the percentage complete reduction discussed above, as well as less activity for the Company's major construction vessels. “I am very pleased with McDermott's operating and financial results for 2010. We had exceptional bookings of $4.2 billion during the year, including almost $2 billion in the fourth quarter, which provides a strong ending backlog and a solid foundation for the future,” said Stephen M. Johnson, President and Chief Executive Officer of McDermott. “During the fourth quarter, our productivity was largely as expected, however the percentage complete on a couple of projects declined as a result of significant scope growth, resulting in lower revenues and profits being recognized for the period as compared to our prior expectations. Nonetheless, the additional work is a positive development, and the overall contract size, as well as the current embedded profit, has increased on these projects.” The Company's other expense for the fourth quarter of 2010 was $5.4 million, compared to $5.5 million in the fourth quarter of 2009, which consists primarily of interest income, interest expense and foreign currency translation expenses. At December 31, 2010, the Company's backlog was $5.0 billion, compared to $3.6 billion and $3.3 billion at September 30, 2010 and December 31, 2009, respectively. For the year ended December 31, 2010, McDermott reported from continuing operations revenues of $2.4 billion, operating income of $314.9 million and net income of $236.6 million, or $1.00 per fully diluted share. Included in the full year results are approximately $46 million of impairment and facility closure costs.